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CERAWEEK: Mexico LNG project developer signs offtake deals, nears investment decision

Highlights

Pacific location lures buyers as delivered prices soar

Government permit expected to be secured by March

  • Author
  • Harry Weber and Corey Paul
  • Editor
  • Richard Rubin
  • Commodity
  • LNG Natural Gas Shipping
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  • United States
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  • CERAWeek

Mexico Pacific Ltd. has secured binding offtake agreements for around a third of the volumes it needs to cover the two-train, 9.4 million mt/year first phase of its project and is close to signing up commitments for the remainder, executives said March 8.

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Privately held MPL, which would use US feedgas to produce its LNG and is catering mostly to Asian utilities and other end-users, has spent more than a year quietly building the commercial support it needs to advance to construction on the project.

The company started to finalize the first ones in early 2022, amid the run-up in global prices but before Russia's invasion of Ukraine upended markets. The developer expects to commercially sanction the project in September, with three or four off-takers in place by then, CEO Douglas Shanda said in an interview at CERAWeek by S&P Global.

Perhaps the project's biggest draw has been its proposed location on the Pacific Ocean. Tankers would be able to avoid the Panama Canal and reach East Asia, MPL's primary customer target, in about half the time it takes for shipments from the US Gulf Coast. Constraints at the Canal have put greater focus on the location advantage.

"Things are taking off, and we are trending toward that September FID," Shanda, a former Cheniere Energy operations executive, said.

Executives said the agreements reached and being discussed would be delivered free-on-board, include a fixed liquefaction fee and would mostly be indexed to US Henry Hub and Waha. They did not say what fee MPL was charging. They did say it would not be of the ultra-low variety that some of their US peers have been signing in recent years.

"When we evaluated the price, because of the fundamentals of the project, we never had to beat other projects to the lowest possible price," Shanda said. "We're on the West Coast. We're a dollar less on shipping. We're close to the gas supply. We had a lot of things working in our favor."

MPL executives declined to disclose the specific volumes covered in sale and purchase agreements that have been signed. Executives also declined to identify buyers who had signed binding long-term contracts. But the executives described their counterparties as creditworthy buyers and suggested that they served the Asia market.

"We have started signing SPAs," Chief Commercial Officer Sarah Bairstow said during the interview. "We are almost sold out on Train 1 and Train 2. That's been able to support a lot of the confidence for owning the construction equity. We are starting early works."

Shanda said buyers see the value of the project's fundamentals, allowing the developer to keep its head down "and continue to grind away at the project."

Permit progress

The project still needs an export permit from the Mexican government. MPL expects to receive it by the end of March. The company expects to ship the first LNG from the facility in 2026, Shanda said. Backed by the private-equity investor AVAIO Capital, MPL is marketing what it says will be "the lowest North American landed LNG price into Asia."

MPL's disclosure of commercial progress came as more than a dozen North American LNG developers compete to advance their projects to construction, following two years marked by a dearth of new projects getting commercially sanctioned. Several LNG project sponsors have reported an uptick in commercial talks after months of high prices in end-user markets, particularly in Europe with the unfolding crisis in Ukraine.

"Sentiment has absolutely shifted the amount of new customers asking to come into the mix, even European customers now," Bairstow, a veteran of Santos's Gladstone LNG project in Australia who headed MPL's marketing effort, said. "That's been a big shift in the last few years."